Millennials' Continuing Effect on Real Estate Cannot Be Ignored
Millennials, otherwise known as Generation Y, are individuals born after 1979. Now, they comprise the largest segment of our population, according to the 2010 United States Census. Developers and owners of retail centers, housing, and office space must be aware of the shopping, living, and working trends of Millennials to ensure that their developments don’t become antiquated, or even obsolete.
And, the trends are telling. The Millennials grew up with the Internet, so it should be no surprise that Millennials are very comfortable shopping from a computer or a smartphone. They expect their online experience to be consistent and seamless with the real world. Millennials expect instant gratification online and are beginning to expect the same in the real world. This presents somewhat of a contradiction, considering that Millennials are the first generation to embrace a shopping experience where they purchase a product, it is shipped to them, and they knowingly have to wait 48 hours or more before receiving it.
According to the Urban Land Institute, Millennials typically choose to live in an urban location over a suburban one, and largely seek to live, work, and play in close proximity. Even when they reside outside the urban core, Millennials aim to live in a location that offers an urban experience — within suburbia. Outside of student loans, Millennials generally eschew debt, as they were heavily impacted, both financially and philosophically, by the Great Recession of late 2007 through mid-2009. According to CNBC, studies have revealed that they continue to save more often than any prior generation, and the publication Chain Store Age predicts that they will outspend the Baby Boomers by 2017.
If retail centers don’t capture the attention of Millennials, they face the prospect of “missing the boat,” and not “capturing the wallets” of the largest generation of future shoppers. Millennials are savvy consumers and they have a lot of information being transmitted to them. Developers that are integrating this demographic transformation into their current and future projects will likely have retail centers with a distinct identity, or an experiential aspect, whether it is a discount center, a grocery-anchored center, or service centers, such as medical offices, schools, personal grooming establishments, or a mixture of the above-mentioned uses.
Landlords following this trend know that Millennials will purchase their commoditized products online, so they must be extremely strategic in assembling their tenant mix. Many commoditized national chain stores will likely be replaced with a mix of differentiated national chains and local proprietors. Diverse restaurant choices will be an uppermost priority, as Millennials view eating out as a form of entertainment. Developers and owners of retail space are already cognizant that sales from the Internet are eroding some portion of brick and mortar sales. As such, stores will be smaller, and must be more efficient and frequently updated.
Landlords and tenants must work together to optimize each shopping venue. Many successful retail centers will have a great deal of community gathering spaces that are WI-FI capable. Developers and landlords looking to attract Millennials are already attempting to incorporate surrounding housing into their developments, by creating walking and biking paths covered by canopy trees. This increases the center’s “walkability,” and thus allows Millennials to shop without having to get into their cars. This creates the urban suburbia.
With the continued rise of Internet sales, one imminent concern is the anticipated reduction in retailers’ real world footprint. To counteract this trend, retailers must focus on omni-channeling and be ready for their retail space to handle “click-and-pick-up” locations. Stores must also have a diverse inventory in order to meet the ever changing needs of Millennials. As a result of these changing shopping habits, placement of distribution centers is evolving. As more sales occur online, and the expectation (not just from Millennials) that the products be delivered on the day of order, developers of distribution centers are moving away from an industrial analytical analysis of placement of distribution hubs, to a consumer analytical analysis.
While high street retail is not significantly affected by these trends, lifestyle centers, shopping centers, power centers, and neighborhood centers are recognizing these trends and adapting in order to remain competitive in the real world.
Housing developers have become mindful of these trends, understanding that Millennials want to live, work and play in close proximity to each activity. Consequently, developers are constructing more housing options in the urban core. Since this land is more expensive, Millennials understand that they need to sacrifice something. They are willing to dwell in smaller living spaces with less high-end finishes, as long as their housing contains large and extensive community rooms, state of the art fitness centers, and dedicated areas for pets. If the barriers to entry are too high to build in the urban core, then developers will try to develop housing that is located in close proximity to public transportation and walkable retail space. The suburbs are not going away, but new housing stock needs to consider these trends and incorporate accordingly.
Finally, Millennials are also having a significant effect on office space. Like their living and housing trends, Millennials place less value on individual offices, and more significance on open floor plans, which translates into less fixed office space, less square feet per employee, and potentially subsequent parking issues. Millennials also desire extensive amenities such as “game rooms” to foster brainstorming sessions. Progressive office landlords and tenants are paying attention and reacting accordingly.
As the largest segment of the U.S. population, Millennials are affecting, and will continue to affect, all aspects of real estate.
Owners, developers, investors, and tenants with an eye on the future are recognizing this demographic “revolution,” and are revamping many of their strategies to account for the increasing economic influence of the Millennials.
by Barry D. Lapides
Berger Singerman LLP
1450 Brickell Ave., Suite 1900
Miami, FL 33131
South Florida Legal Guide 2014 Edition